Question
11. A portfolio manager summarizes the input from the macro and micro forecasters in the following table: Micro Forecasts Asset Expected return (%) Beta Residual
11. A portfolio manager summarizes the input from the macro and micro forecasters in the following table:
Micro Forecasts
Asset | Expected return (%) | Beta | Residual Standard Deviation (%) |
Stock A | 25 | 1.2 | 56 |
Stock B | 19 | 1.6 | 70 |
Stock C | 16 | 0.5 | 61 |
Stock D | 13 | 1.0 | 53 |
Macro Forecast
Asset | Expected Return (%) | Standard Deviation (%) |
T-Bills | 7 | 0 |
Passive Equity Portfolio | 15 | 21 |
a. Calculate expected excess returns, alpha values, and residual variances for these stocks. (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round "Alpha values" to 1 decimal place.Omit the "%" sign in your response.)
Stock A | Stock B | Stock C | Stock D | |
Excess returns | 18% | 12% | 9% | 6% |
Alpha values | 8.4% | -0.8% | 5% | -2% |
Residual variances | 3136 | 4900 | 3721 | 2809 |
b. Compute the proportion in the optimal risky portfolio. (Do not round intermediate calculations. Enter your answer as decimals rounded to 4 places.)
Proportion _______??
c. What is Sharpes measure for the optimal portfolio and how much of it is contributed by the active portfolio? (Do not round intermediate calculations. Enter your answers as decimals rounded to 4 places.)
Sharpe's measure _______??
Active portfolio ________??
d. What should be the exact makeup of the complete portfolio for an investor with a coefficient of risk aversion of 3.1? (Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the % sign in your response.)
Final Positions
Bills ____%??
M _____%??
A _____%??
B _____%??
C _____%??
D _____%??
Total _____%??
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